Medical Loss Ratio (MLR) Rebate checks have recently been or will be mailed by some health insurance carriers. Keep in mind, not all employers will receive an MLR Rebate. Health insurers determine and calculate MLR Rebates based on their overall business including market segments and specific products by regions or state.
Background
Under the Affordable Care Act (ACA), all health insurers are required to disclose the percentage of medical plan premiums spent on paying claims and health improvement activities for their members. The Medical Loss Ratio (MLR) rules state that insurers in the small group market (50 or fewer employees) must spend 80 cents of every premium dollar collected on health care services or an MLR of 80%. For the Large group market (51 or more employees) insurers must spend 85 cents of every premium dollar collected on health care services or an MLR of 85%.
All insurers are required to report their prior year MLR data to the U.S. Department of Health & Human Services. If the minimum standards are not met, premium rebate checks must be provided to the employer sponsor (group) & the employees that were insured during the 2021 calendar year. The rebate allocations, if determined and applicable, are based on the employer sponsor and participant’s contributions during the 2021 calendar year. Please refer to the allocation example below:
Example
-Total group health care premiums paid during the 2021 calendar year = $100,000 (based on 20 participants).
-Total employer contributions during the 2021 calendar year = $60,000.
-Total employee payroll deductions received by the employer and paid during the 2021 calendar year = $40,000 (40% of total paid premiums).
-Employer receives a rebate check for $2,500.
-In this example, $1,000 (40% of $2,500 rebate check) must be returned to the participants.
-Based on the 20 participants, each will receive a rebate of $50 ($1,000 ÷ 20 = $50).
How should an employer distribute the Rebate to their employees if determined and applicable?
Employers of a group health plan are subject to ERISA rules and have a fiduciary responsibility regarding use of the MLR rebate. The MLR rebate must be used for the benefit of employees covered in the plan. The employer must determine what employees are affected, if any, by the rebate based on their actual contributions toward the premium for the 2021 calendar year. Decisions on how to allocate the participants’ portion of the rebate are subject to ERISA general standards, so an employer must distribute the rebate in one of three ways:
1. To return the rebate to the participant as a cash payment.
2. To apply the rebate as a reduction of future participant premium (payroll deductions) contributions.
(In the example above, you could apply the $50 toward each participant’s next payroll deduction).
3. To apply the rebate toward the cost of benefit enhancements.
Employers should be aware that they are not required to send a specific notice to the employees regarding the rebate. However, insurance carriers are required to send notices of rebates to the participants, but the notices will not include an amount.
Our recommendation is to communicate to your insured population that you are in receipt of the rebate; will be conducting a thorough review to determine if any of the rebate is required to be allocated to the insured population; specify a timeline (i.e. over the next 30 days) for the next communication; include amounts, if any, to be allocated; how they will be allocated (i.e. as a reduction to their next health care payroll deduction); and when they will be allocated (i.e. on their next payroll cycle or specific date).
As always, if you need additional clarification or have any questions, please reach out to us.
Thank you!